Other things equal, a firm that must obtain its long-term debt and equity in a highly illiquid domestic securities market will probably have a:
A) relatively low cost of capital.
B) relatively high cost of capital.
C) relatively average cost of capital.
D) cost of capital that we cannot estimate from this question.

Question

Quizplus · Accepted Answer

A highly illiquid domestic securities market typically means that there is a limited number of investors and buyers, which may lead to higher borrowing costs and higher rates of return demanded by investors. This would result in a relatively higher cost of capital for the firm.

Other Things Equal, a Firm That Must Obtain Its Long-Term